Exploring The Different Market Structures Available

The primary objective of any business organization is to maximize the profits from its operations in order to enrich the wealth of its investors. This calls for provision of high quality goods or services at competitive and optimum prices which allow the company to make good returns while, at the same time, not exploiting their clients. As a result, businesses are forced to come up with good pricing strategies to achieve this. However, pricing strategies are different for businesses depending on the market structure in which they operate. Markets can be classified as perfect competition, monopolistic competition, oligopoly and monopoly. Each of these structures has different characteristics and conditions that call for different pricing†¦show more content†¦The number of sellers in this kind of market is very high, with individual firms controlling a very little and insignificant portion of the market. As a result, the pricing decisions of one firm will not affect the price in the market or influence the decisions of the other players. Also, these numerous firms sell similar products which are not differentiated from each other in any way. Consequently, customers freely buy from any seller in the market since all the products are similar (Baumol Blinder, 2015). This greatly increases the competition. The presence of numerous firms is compounded by the fact that the entry and exit from the market is free. There are relatively no barriers that may prevent newly found firms from joining the market. For this reason, the number of firms remains high in the long run. Finally, the market is characterized by perfect knowledge of the products and prices being offered. Sellers and buyers easily have access to this information. These characteristics are largely ideal and can rarely be found in any economies. It is however important to understand this market structure and its pricing strategies. 1.2 Pricing strategies The profit maximization strategy for a perfectly competitive market informs the price setting decisions by the participating firms. The price determination is not influenced by other firms’ decisions since there are a large number of